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Despite recent scandals in the broader crypto industry, which have given weight to severe skepticism for further trust in the crypto, the reality is crypto is not going to go away. As more and more merchants consider offering crypto services as a means to accepting payments, it is only natural for questions to arise whether crypto transactions are secure enough for everyday payments. However, we must consider that the crypto payments ecosystem has reached a point of trust where several existing safety nets prevent hackers and fraudsters from using crypto as a tool against merchants who are eager to attract the crypto generation to their stores.
Meeting demands for crypto at checkout
Many of the big institutions are already aligning their commerce strategies to accommodate offering crypto payments. Visa, Mastercard, Square and Paypal’s cryptocurrency integrations now enable merchants to accept crypto payments from customers. Financial institutions are venturing into the domain of Web 3.0 and several governments are experimenting on their own central bank digital currencies (CBDC).
Whether consumers are changing their payment habits due to the fear of missing out, or because “it’s where people are investing” or for the want of privacy from the regulators, it is clear this desire to pay in crypto isn’t going away anytime soon. In the UK, consumers are already paying with crypto, with research from Checkout.com revealing that one in three (30%) UK consumers intended to use crypto as a form of payment in 2022 – a figure which increased to two in five (40%) when looking at respondents globally. In addition, 40% of people aged 18-35 in the UK are planning to use cryptocurrencies to pay for goods or services within the next year.
Security is a driver, not blocker, for crypto commerce
Cryptocurrency is built with data protection at its core. Crypto literally means secret. In practice, consumers can buy crypto with fiat currency on crypto exchanges. But to store, send, and receive crypto, they need to use a digital wallet, and merchants also need to use one to accept payments.
There are two types of wallets – hot and cold. Hot wallets (also known as software wallets) are connected to the internet, easy and fast to use. While cold wallets (also known as hardware wallets) are stored offline, which makes them less convenient to use, but more secure compared to hot wallets.
Both types of wallets contain the cryptocurrency keys that allow the user to access their coins. This includes a public key which is used to receive funds and a private key which is used to “sign” transactions and to validate that the person owns the public key.
Using keys means that when someone is making a transaction online then there is no need to provide any personal information like email or address. This provides extra protection and reduces the chances of identity theft. The use of blockchain which underpins most major cryptocurrencies also ensures there’s no single point of failure, which creates a tamper-proof record of all transactions.
How merchants can protect themselves
The very nature of crypto security means that transactions are final and cannot be reversed. This is a big positive for merchants as it reduces the chances of them falling victim to fraudulent chargebacks, especially if they are operating in high-risk retail sectors.
Merchants can manage their risk by monitoring the metadata (the public key) which is coupled with every crypto transaction and remains on the public ledger. From this, transactions can be tracked without the need to reveal a shopper’s personal information. The public key also makes it easier to identify whether a transaction is fraudulent or genuine.
Crypto payment processors also add an extra layer of protection by employing multiple credibility checks to help spot suspicious transactions. From KYC (know your customer) to KYB (know your business) and KYT (know your transaction), these cross checks are run on the customer, business, and transaction to validate all parts of the transaction from start to finish.
Preventing fraudsters from succeeding
Every reputable crypto wallet will have two-factor authentication (2FA), such as a one-time password or biometric authentication. Should fraudsters manage to access a consumer’s device which contains their wallet, as long as the wallet has a 2FA, it is protected. Multiple authentication factors increase wallet security. If one authentication factor is compromised, the hacker would have to restart the hack to gain access to a second type of authentication. The chances of the hacker’s success are eliminated if the 2nd authentication is a strong password.
There are also additional technologies within the blockchain sphere, like sharding which are providing further protection from fraudsters. Sharding is essentially sharing shards of private keys across nodes, which come together to build private keys. Multi-party computing (MPC) is also another development, that divides the shopper’s key into separate parts (based on stakeholder) therefore making the key invisible to anyone trying to commit fraud.
These secure developments enable merchants to leave digital currencies in their wallets without having to worry about compromising on security and convert the crypto into fiat at a later beneficial point of time when the crypto has a better value or trade with other merchants / wholesalers who accept cryptos.
Challenging crypto’s poor security perceptions
Even though security has increased, more than half of business owners (59%) are still cautious of cryptocurrency payments and feel like cash and credit cards are still the safest option. However, those merchants who have started to offer crypto payments do feel like it is a much safer method compared to others. Such merchants also realize that accepting crypto payments means much lesser transaction processing fees leading to better profitability.
Clearly, there’s a misunderstanding between actual risk and perceived risk, which could mean merchants are holding themselves back for no reason. Crypto will inevitably continue to increase in popularity. Merchants will need to offer crypto payments as part of the payment mix and, knowing how to navigate the crypto payment space will be imperative. By not implementing crypto payments, they are missing out on benefits like lower chargebacks and less fraud. Accepting crypto could also help them lower transaction costs and attract more consumers who want to transact digitally.
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"Crypto will inevitably continue to increase in popularity." Mmmm. I think that needs some substantiation.
Director – Strategic Partnerships
ACI Worldwide
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05 Jan
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